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FABE v. FACER INS. AGENCY

July 20, 1984

GEORGE FABE, SUPERINTENDENT OF INSURANCE, STATE OF OHIO, COLUMBUS, OHIO, LIQUIDATOR OF PROPRIETORS' INSURANCE COMPANY (AN OHIO CORPORATION), 7991 COLUMBUS PIKE, DELAWARE, OHIO 43014, PLAINTIFF,
v.
FACER INSURANCE AGENCY, INC., 341 S. CENTURY, RANTOUL, ILLINOIS 61866, DEFENDANT.



The opinion of the court was delivered by: Baker, District Judge.

ORDER GRANTING SUMMARY JUDGMENT

In this diversity action, the plaintiff, George Fabe (Fabe), Superintendent of Insurance of the State of Ohio, as liquidator of Proprietors' Insurance Company, an Ohio Corporation, with its principal place of business in Delaware, Ohio (P.I.C.), seeks to recover premiums and commissions from the defendant, Facer Insurance Agency, Inc., a Delaware Corporation, with its principal place of business in Rantoul, Illinois (Facer). More than $10,000 exclusive of interest and costs is at issue. See 28 U.S.C. § 1332. The material facts in the case are not in dispute and each party has moved for summary judgment. See Fed.R.Civ.P. 56.

I.

P.I.C. was in the business of insuring against risks associated with aviation and, as "the Company", on January 17, 1980, entered into an Agency Agreement in writing with Facer as "the Agent." That contract provided generally that the agent was to procure proposals for contracts of insurance covering risks that the Company lawfully could insure against. As they apply to this case, the pertinent parts of the Agency Agreement are that:

  [T]he agent may collect, receive, and receipt
  premiums on insurance proposals tendered to and
  accepted by the Company, and may hold such premiums
  as a trustee, separate and apart from all the other
  moneys belonging to the Agent and retain out of
  premiums so collected, as full compensation for
  business placed with the company, commissions. . . .
    Money due the Company on business placed by the
  Agent with the Company shall be paid in full no later
  than forty-five (45) days following the end of the
  month in which policies become effective.
    If the Company shall return or refund to any
  insured the whole or any part of premiums from which
  the Agent has retained commissions and/or charges,
  the Agent shall promptly repay to such insured the
  same proportionate part of retained commissions
  and/or charges.
    After issuance by the Company of any contract of
  insurance directly to an insured, the Agent shall be
  liable to the Company for the earned premium on each
  policy or binder of insurance solicited and written
  through the Agent, whether the same shall have been
  collected or not.

Pursuant to the Agency Agreement, Facer solicited proposals, and P.I.C. wrote contracts of insurance for which premiums were collected and forwarded and commissions retained. Then, on July 30, 1981, Fabe's predecessors in office were appointed Conservator of P.I.C. by the Court of Common Pleas of Franklin County, Ohio, to oversee the rehabilitation or liquidation of P.I.C.

  The Ohio Court enjoined:

   . . all persons having claims against the Defendant
  [PIC] from instituting or continuing any action;
  other than in this liquidation proceeding, which
  would (1) interfere . . . with the possession,
  control, title, rights, or interests of the
  liquidator . . . (2) tend to give rise to
  a . . . preference, judgment, attachment, lien or the
  making of a levy against the Defendant [PIC] or its
  property or assets subject to the liquidator's
  control.

At various times between July 30, 1981, and September 4, 1981, all of the policies of insurance procured by Facer for P.I.C. were cancelled by Fabe, or his predecessors, acting under orders of the Ohio courts. On July 30, 1981, P.I.C.'s records show and Facer admits, that there was $20,453.47 due on account to P.I.C. from Facer as total premiums, both earned and unearned, for policies of insurance procured by Facer. There is also no dispute that on January 31, 1982, $9,580.75 was the amount of Facer's commissions on unearned premiums resulting from the cancellation of the P.I.C. policies written by Facer.

Fabe claims that Facer is liable for all the premiums due on July 30, 1981, without regard to whether the policies on which the premiums were due were subsequently cancelled and irrespective of whether the premiums became unearned premiums. It is also Fabe's position that Facer must seek its remedy for any offset for unearned commissions in the Ohio liquidation proceedings and, for that purpose, Facer must take its place as a general creditor of P.I.C.

Facer, on the other hand, contends that it is not liable to P.I.C. for unearned premiums and that the insolvency of P.I.C. and the cancellation of the policies, relieved Facer of its responsibility to forward premiums. As to the unearned commissions, Facer says it credited the cancelled policyholders for the amounts of those commissions when Facer wrote new policies to take the place of the cancelled P.I.C. policies. Facer asserts that the commissions rightfully belonged to the policyholders and not to P.I.C. and that Facer, therefore, returned the commissions to the policyholders.

Facer argues, and Fabe does not contest, that the law of Illinois is applicable to this case. See Klaxon Company v. Stentor Electric Manufacturing Company, 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). "Under traditional Illinois conflict of law principles, the validity, construction and obligation of a contract are determined by the law of the place where it is made and performed." (Footnote omitted.) Zlotnick v. ...


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